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NZ TWI trading below level RBNZ had projected out to mid-2017; NZD trades lower on disappointing dairy auction; Germany refuses to engage with Greece

Currencies
NZ TWI trading below level RBNZ had projected out to mid-2017; NZD trades lower on disappointing dairy auction; Germany refuses to engage with Greece

By Kymberly Martin

The USD has strengthened over the past 24-hours, mostly at the expense of European peers.

The NZD/USD has drifted down to 0.6750 overnight.

There was another relative lull in the Greek crisis overnight. Greece’s latest submission to the ESM for aid appears to have ceded to most of the creditors’ previous demands.

However, German Chancellor, Merkel has refused to engage ahead of Sunday’s Greek referendum.

European equities enjoyed a bounce, with the Euro Stoxx 50 closing up 2.1% and credit spreads narrowing.

The EUR/USD pushed a little higher early in the evening following solid regional PMI data and the headlines suggesting that Greek PM Tsipras would accept most previous bailout conditions.

However, the optimism proved short-lived. The USD gained the upper hand in the early hours of this morning, after a solid US ADP employment report.

This will reduce market anxiety around the potential for a negative surprise in tonight’s more crucial US payrolls report. This morning the EUR/USD sits around 1.1050.

The GBP/USD came under pressure last evening after a disappointing UK manufacturing PMI release. While manufacturing activity remains in expansion, it is at its lowest level since April 2013.

The GBP/USD had fallen from around 1.5720 to trade at 1.5600 currently.

The AUD and NZD were both victims of USD strength overnight.

However, downward momentum in the NZD/USD was also assisted by another soft GDT dairy auction in the early hours of this morning.

Average dairy prices declined a further 5.9% from last event. This will disappoint those hopeful that prices could start to stabilise after sharp falls over the past few months.

Overall, we see continued downward pressure on current milk price forecasts. However, it is worth bearing in mind that the concurrent decline in the NZ TWI is providing some offset to the fall in world milk price.

The NZ TWI, at 70.80, is now trading below the levels the RBNZ had projected out to mid-2017, in its June MPS. It is also some 4% below the level the RBNZ had projected for the current quarter average.

Today, the ANZ commodity price index will be released but is unlikely to provide any further insights relative to the dairy price auction.

More important for the fate of the NZD (and most of its peers) will be the US payrolls report tonight. A number above the consensus forecast of 233k could refocus the market’s mind on pending Fed hikes, after the distraction of the Greek crisis.

As always, the average hourly earnings numbers are probably more important than the headline payrolls number as an influence on Federal Reserve’s analysis of labour market slack.


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Kymberly Martin is on the BNZ Research team. All its research is available here.

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